In 2009 the Canadian government introduced a new savings tool- the Tax Free Savings Account (TFSA). The TFSA allows Canadians to grow their money inside the account tax free. Whether its interest, dividends or capital gains, the account is not subject to taxes even when withdrawn.
All Canadian residents over the age of 18 with a social insurance number are eligible to open a TFSA, regardless of their earning power.
For 2020 you can contribute up to $6,000 in your TFSA. Additionally, you can carry forward any unused contribution room indefinitely. So if you have never invested in a TFSA before you could contribute $69,500. Unlike an RRSP, TFSA contributions are not tax deductible.
You can withdraw from your TFSA at any time for any reason, but you can not re-contribute that amount in that year. You can add the withdrawn amount from your TFSA to your contribution amount allowed for the following year, which will be reported to you by the government.
Example: You put $5000 into your TFSA in January 2009 and withdraw $1000 in July. In January 2010 you can put in $5500 (annual allowable contribution) plus the $1000 re-contribution – for a total contribution of $6000.